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Dealer Tire Starts to Make Noise

December 26, 2016

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By Chuck Soder

I’ve served as the tech reporter at Crain’s for about 10 years, and in that time I’ve noticed that one thing will happen in the local tech sector almost every single year: The software industry will grow.

The best piece of evidence for this is the Local Software Developers list that Crain’s publishes each year. Without fail, those companies, on average, have grown every year. They slowed down during the recession, but even then, they didn’t stop growing.

That trend shows up in one item on this Top 10 list: Explorys was among the many software companies that has hired a lot of people in recent years. And though we don’t technically classify Dealer Tire as a software company, in many ways, the tire distributor acts like a software company, which is a big reason why they’re growing. You’ll find them on this list as well.

Not every piece of tech news from 2016 was good, however. And we still don’t know what will happen to the old Ben Venue plant in Bedford or GE Lighting, which is going through a period of major change. Perhaps we’ll find out in 2017.

10. Xellia works to rebuild Ben Venue

The city of Bedford lost its largest employer when ongoing regulatory problems pushed Ben Venue Laboratories to shut down its massive drug manufacturing complex at the end of 2013.

But now a Danish company is working to rejuvenate the facility.

Xellia Pharmaceuticals bought the complex in November 2015, and the company’s Bedford team spent 2016 working to bring the facility back to life. They have made some progress. For instance, in November 2016, the FDA gave Xellia permission to package and distribute drugs at the old Ben Venue complex.

The Danish company aims to begin using the enormous complex for its originally intended purpose, drug manufacturing, in 2018.

9. Explorys makes commitment to Cleveland

If by chance you’re a little bit nervous about what might happen to Explorys now that it is owned by IBM, maybe this will give you some comfort.

In February, the health care analytics company told Crain’s that it had hired 80 people since April 2015, when IBM acquired the fast-growing Cleveland Clinic spinout company.

Then, in March, Crain’s reported that IBM had signed a lease at the 1111 Superior Building in downtown Cleveland — a good sign for anyone wondering about whether Explorys planned to stay in Cleveland.

8. Athersys passes critical Phase II trial — after failing it

For a while there, things weren’t looking so good for the adult stem cell therapy being developed by Athersys.

Back in April 2015, the Cleveland company released the first batch of data from a Phase II clinical trial designed to determine whether Athersys might actually have a blockbuster stroke drug on its hands.

At first, the answer looked like it was going to be “no.” After six months, stroke patients who received the therapy weren’t doing significantly better than those who receive a placebo.

But then another six months passed. With more time to recover, the patients who received MultiStem generally ended up doing better than those who didn’t.

So now Athersys has a much better hand to play. In September, Japanese regulators gave Athersys the go-ahead to begin a trial in that country. If that trial goes well, the 21-year-old company could actually, finally, have a real product on the market — in Japan at least. That same month, the FDA gave a thumbs up to the design of Athersys’ planned Phase III trial.

7. Tech leaders leave University of Akron

Two tech guys with pretty interesting resumes joined the university’s staff after Scott Scarborough became president. Then, in May, Scarborough resigned after a short and controversial stint as president.

A few months later, the guy he recruited to turn the university into a data science hub resigned. Mario Garzia, a former Microsoft executive, said he stepped down because of “constraints that might impact” his ability to build the Center for Data Science, Analytics and Information Technology.

Then, a month later, another Scarborough recruit submitted his resignation. Jeff Hoffman, one of the first employees at Priceline.com, resigned as founding director of the Experiential Learning Center for Entrepreneurship and Civic Engagement. The next day, the university received a resignation letter from Ian Schwarber, who was helping run the center.

6. Equity crowdfunding fizzles

On May 16, it became legal for private companies to raise capital online from just about anyone — not just wealthy people who qualify as accredited investors.

But nationwide, very few companies actually took advantage of the new regulations. In Northeast Ohio, we’ve identified only one company that has successfully raised capital through the so-called “equity crowdfunding” rules: As of Dec. 12, Cleveland Whiskey had used the new rules to raise $711,000 from 952 investors — many of whom were Cleveland Whiskey customers.

But May 16 was supposed to mark the dawn of a new day. After all, people had been talking about equity crowdfunding ever since President Obama signed the Jumpstart Our Business Startups Act in 2012.

So what happened? A few people who spoke with Crain’s said the new rules were too restrictive for most companies. A few of them said equity crowdfunding could become more popular over time, as companies and investors become more comfortable with the concept. And maybe it will become more popular now that Indiegogo is getting into the game.

5. Influx of capital

In 2015, local startups raised $189 million from investors — the lowest number since 2011. But there’s reason to believe that figure will rise over the next few years: Since December 2015, the Ohio Third Frontier program has awarded a total of $74 million to funds that invest in startups throughout Ohio. Those funds were required to raise another $120 million in matching funds, which means that there’s an extra $194 million in new venture capital floating around. And that’s not counting the $300 million fund that Columbus-based Drive Capital closed on in August. Back in July, VentureOhio estimated that other startup investment funds throughout the state had raised or were on the verge of closing on another $100 million. Here in Northeast Ohio, JumpStart closed on a $20 million for-profit fund in August.

4. Wind farm windfall

Sometimes it pays to be on the waiting list.

The decade-long effort to put a wind farm in Lake Erie got a huge boost in May when LEEDCo qualified to receive $40 million in federal grants.

The nonprofit was not expecting to get that money: It became eligible for the funding only after two other offshore wind projects in Virginia and Oregon fell short of benchmarks set by the U.S. Department of Energy.

That funding has allowed the long-running project to gain steam. LEEDCo aims to complete the permitting process in 2017, and in 2018, it expects to begin erecting six wind turbines in the lake, eight to 10 miles north of Cleveland.

3. Dealer Tire starts to make noise

Who signed the biggest new office lease in Northeast Ohio this past year?

A high-tech tire distribution company called Dealer Tire — a company that had been operating in stealth mode until 2016.

In early 2016, the company signed a 20-year lease that will allow it to take over all four floors of the Victory Center building in Midtown Cleveland next year.

The move allowed the city of Cleveland to retain a fast-growing high-tech company that employs roughly 450 people in Northeast Ohio, and it should give a boost to the region’s efforts to lure tech companies to Midtown, which is being branded as the Cleveland Health-Tech Corridor.

The move also gave Dealer Tire’s top executives a reason to finally step out into the limelight. During their first interview with Crain’s, the Mueller brothers revealed that Dealer Tire generates more than $1 billion in annual revenue.

2. LaunchHouse leaves Shaker Heights

The entrepreneurship center previously known as Shaker LaunchHouse was put under new management this summer. And the transition was a little bumpy, to say the least.

LaunchHouse CEO Todd Goldstein was clearly upset in April, when the Shaker Heights Development Corp. put out a news release saying that it would be taking over the building — an old car dealership that was transformed into a hub for startup companies and entrepreneurs when LaunchHouse moved in back in 2010.

The day the news release came out, Goldstein immediately told Crain’s that he planned to lure the building’s tenants to a new location. He also said he planned to take the LaunchHouse name and the company’s furniture.

Several tenants did leave with LaunchHouse when it moved to Highland Heights. Many of them were just as upset as Goldstein was.

Though city officials have credited LaunchHouse with helping create an entrepreneurial vibrancy in Shaker Heights, they argued that the partnership wasn’t financially sustainable. Mayor Earl Leiken also told Crain’s that the nonprofit development corporation would put more focus on persuading its tenants to stay in Shaker Heights as they outgrow building.

Today, the building is called The Dealership. Shaker Heights Development Corp. has hired the nonprofit Economic and Community Development Institute (ECDI) to manage the building’s coworking space and organize programming there.

1. Shakeup at GE Lighting

No other sizable company on the local tech beat has been undergoing such major changes as GE Lighting. And the rise of LED technology is the driving force.

LEDs have upended the East Cleveland-based GE unit’s business model. Over the long term, GE Lighting knows that it won’t be able to simply make and sell light bulbs. LEDs last for decades — way too long for that strategy to produce much revenue (especially given that lighting customers have been trained to expect low prices).

The changes began in 2015, when General Electric announced that it would be moving its commercial LED business into a new business unit called Current. But that unit — which has been tasked with commercializing some of GE Lighting’s biggest ideas — would be based in Boston.

The changes kept coming in 2016: In February, Crain’s reported that GE Lighting promoted Bill Lacey to CEO, replacing Maryrose Sylvester, who moved to Boston. Many other employees saw their titles change as well.

The company also has been abandoning old products and old factories: It stopped selling coiled CFL bulbs during the first quarter of 2016, and in August it announced plans to close down six plants that make traditional lighting products, including two plants in Ohio. On Aug. 31, it announced plans to stop selling products in Asia and Latin America.

Today, GE Lighting is entirely focused on consumer lighting products. General Electric’s commitment to that space is ambiguous: In January, the GE executive who oversees GE Lighting, Beth Comstock, told Bloomberg that “the focus on our future really is on the smart, connected, commercial space for lighting.”

Even so, GE Lighting has been moving ahead with innovations designed to give the company an edge in the consumer lighting world. For instance, it just announced plans to release a voice-activated table lamp that uses Amazon’s Alexa technology, and it has said it plans to open an incubation lab in East Cleveland.